Shares of microlenders, including CreditAccess Grameen, Spandana Sphoorty and Equitas Small Finance Bank, rallied on Thursday after the Microfinance Institutions Network (MFIN) decided to defer by three months the implementation of limiting the number of lenders to three per borrower.
MFIN, the self-regulatory organisation for the microfinance sector, had in November proposed a new cap of three lenders per borrower along with a few other guidelines related to underwriting, KYC, and reporting data to credit bureaus. While the other norms came into effect on January 1, the rule on limiting the number of lenders to three per borrower will now be implemented from April 1.
“The feedback we got from the institutions was that the changes to the IT systems, the business rule engines, and all that takes time. To do it right now from January 1, when they have already done one major change in August and September would be a little troublesome and can create some problems in implementation in the field,” said Alok Misra, CEO, MFIN, adding: “That is why we have given some time…from April 1, it will be on.”
Shares of CreditAccess Grameen jumped nearly 10% in intraday trade on the NSE before closing at Rs 947, a 6.5% gain. Shares of Spandana Sphoorty closed at Rs 339, up 3%, while the Equitas SFB stock rose nearly 2% to close at Rs 65.
The sector has witnessed a significant slowdown in microfinance growth in the current financial year amid mounting asset quality concerns. Following two years of robust expansion, the sector is now facing challenges stemming from borrower over-leveraging, socio-political disruptions, and operational challenges, largely related to employee attrition.
The latest Financial Stability Report released by RBI showed that the asset quality stress in the microfinance sector has doubled in the April-September 2024 period, with loans due more than 31-180 days rising to 4.30% at the end of September 2024 versus 2.15% at the end of March 2024.
The new measures are aimed to encourage responsible lending, but they have also made it more difficult for some people to qualify for loans. According to Icra, the outlook for the MFI sector remains challenging. The sector’s profitability is expected to face significant headwinds in the next financial year due to rising credit costs and compressed net interest margins.